Research Paper on "American Airlines After World War I"

Research Paper 5 pages (1553 words) Sources: 7

[EXCERPT] . . . .

American Airlines

After World War I, many of the pioneers in the airline industry realized there was a huge potential for consumer travel, business transportation, and even mail and parcel delivery. This evolved after the technological advances in World War II to become a huge global industry with companies like Pan American, TWA, and others increasing production, destination sports, and bringing the cost down and safety levels up. Companies like Boeing, Lockheed and McDonald Douglas had tooled up for the war, and were now looking for lucrative ways to translate the technology to the consumer. What followed was a slow but steady rise in the construction of airports, increase in flight schedules and consumer availability. In the 1970s the industry received a new boost because again, technological advances allowed for Jumbo Jets and longer range flights. The demand for air travel burgeoned until in the 1980s over 50% of airline travel took place in the United States. Yet, particularly after 1980, the international market simply exploded, and more and more regional carriers were needed (Mill and Morriston, 2002)355-93). The massive shift to consumer travel caused the spin-off of a number of airlines that were set up specifically to be "low-cost," "no-fills," short route carriers. The economic crisis of the 21st century also hit the airline industry. While there are thousands and thousands of flights per day, growth rates remain inconsistent, there is increasing competition between U.S. Boeing and Europe's Airbus, and consolidation is the trend. In addition, as routes are often cut in order to fill planes, services diminish. Most airlines now charge for baggage, there is very little in-flight refreshment, seats are put as close together as possible, and airlines have become a "cattle car" of moving as many people as possible from point A to point B (CNN Travel, 2010).

History of American Airlines -- American Airlines is the fourth largest airline, headquartered in Dallas/Ft. Worth, Texas, and was listed at 120 in the 2010 Fortune 500 and also a founding member Oneworld airline alliance, which attempts to develop common specifications in engineering and maintenance activities, reduce costs and improve efficiency in the global airlines industry (OneWorld, 2009; (American Airlines, 2011). American serves about 260 cities worldwide with 655 aircraft. It carries more passengers between the United States and Latin America. It was formed when 82 small airlines found that it would be mutually advantageous to form a larger carrier in 1929, and by 1934 began aggressively pursuing major markets. After World War II American continued to grow, introducing transcontinental service in 1959, launched the first computerized electronic booking system in 1962, and built an upgraded terminal at Idlewild (now JFK) Airport in New York, pushing that city to become American's largest base. In 1973, American became the first airline to hire a female employee, and then moved its base to Texas in 1979, chaning it routing to a hub-and-spoke system. American weathered the ups and downs of the economy, and purchased a number of Braniff routes from Eastern Airlines to Central and South America. In 2001, American purchased TWA, a conentious purchase due to union and regulation issues. After 9/11 and the merger, American began losing money and had to raise prices, negotiate cuts in wages and benefits, and some layoffs. IN 2010, American and JetBlue announced a partnership, expanded rougtes to Japan and China, and more transcontinential flights from New York to Los Angeles. Since late 2010, American has been in dispute with ticketing agencies Orbitz and Expedia, causing more issues within the airline industry (Forty, 1997; aa.com; Cameron, 2011).

Current Status of Airline Industry- Since 2006 the airline industry has faced a number of rather serious problems due to the global economic recession. A combination of travel cut back in both business and personal travel, rising human and fuel costs, and continued issues with security caused a number of smaller airlines to fold and even the major players to institute cost cutting measures (charging for baggage, reduction in meal services, etc.). In fact, in 2008 and 2009 the industry lost a total of almost $26 million, but recorded a $16 billion profit in 2010. The International Air Transportation association expects a slight softening but the industry to still produce a profit of almost $9 billion. The Asia-Pacific routes are growing the fastest, expected to generate almost $4 billion in profits in 2011, the highest in the industry. The challenge for many carriers comes from rising fuel prices, issues still with flying to Japan, consolidation issues (e.g. Delta and NW, etc.). Supplementary revenues are expected to continue (bag fees, reservation change fees, pet travel, etc.), and although many carriers are involved in a number of technological updates that will enhance customer service, the number of new planes is unlikely to grow too much in 2012. Oil price volatility is considered the largest weakness even though the long-term outlook for the industry remains generally positive (Zack's Equity Research, 2011).

Current Status of American Airlines- In Winter 2010 American was grated antitrust immunity to work with several other airlines on transatlantic routes. The company is continuing to expand domestic urban routes alone and in partnership with Jet Blue as well as increase its Asian presence. The company has a strong record of environmentalism post 2000 and has received awards for sustainability from the Texas Commission on Environmental Quality. As of July 2011, American moved from being a Boeing only fleet to ordering 260 new Airbus craft to replace the McDonald Douglas MD-82 and 83 starting in 2013 (American Airlines, 2011; American Airlines Receives Texas Commission on Environmental Quality, 2006).

For the second year in a row (2010 and 2011), American Airlines was ranked among the most innovative companies in the United States by Information Week. The company continues to innovate in passenger tools that allow personalized travel; a tool that gives ramp employees access to real-time information about cargo; and even a visual touch-screen application that gives critical information on arrivals, departures, connections and passengers to tower control employees (Zack's Investment Research, 2001).

Macroeconomic Indicators

Relationship between macroeconomics and American Airlines - American Airlines financial condition has been significantly weakened during the last 6 years. They lost $893 million in 2005, 2006 and 2007 were profitable, but again lost $2.1 billion in 2008, $1.5 billion in 2009 and $471 million in 2011. This was the result of global economic downturns, increased fuel prices, and weak travel demand. We can see some correlation with increased unemployment in the U.S. And decreased passenger reservations, and GDP and Consumer Price Index on choices in travel plans, length and/or complexity of destinations, and additional tightening of the consumer's belt -- and thus a weakened demand for American Airlines 2006-2010. In addition, the economic downturn resulted in lower investment, a material decrease in values, and greater difficulty in securing funding for future growth (Risk factors in 2010 Annual Report, aa.com).

Future challenges and opportunities for American Airlines or Airlines in general- Many major carriers are struggling during uncertain economic times. Industry-wide, capacity may increase to the extent the economy continues to recover from the global recession, particularly as American opens new routes to several cities in SE Asia and China. If industry capacity increases, though, and if consumer demand does not increase, the airline industry as a whole could be negatively impacted. Additional, the market for oil results in the industry having little or no stability in median pricing scenarios. Most analysts are predicting that high oil prices, natural disasters, and political unrest, as well as the worsening economic situation in the EU will continue to degrade air travel in 2011. To be profitable in 2001, oil prices needed to be below $25. Now, because of increased efficiencies and technological development, there is a small profit when oil is at $110 per barrel.… READ MORE

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